EURUSD Trading in “Off” Hours

While there is much less volatility in the EURUSD when London or New York aren’t open, there is still potential. Not typically a time I trade, I couldn’t help but notice how the EURUSD respects the Envelopes originally discussed in the EURUSD Day Trading-Oct 7 (and subsequent posts) during the quieter time of day, after New York closes and Europe hasn’t reopened yet.

Figure 1 shows a 5 minute chart for the several hours following the US session (in blue). Once the downtrend began it respected the upper band, which is where the sell orders are placed during a downtrend (at the lower band during an uptrend). This is a trend following strategy, therefore trades signals are only taken when there is a strong trend in place (see: When a Trend is Trustworthy and When It Isn’t).

Figure 1. EURUSD 5 – Minute Chart (January 23/24, After U.S. Close)

Four potential short/put trades are marked. The first trade is questionable, since the downtrend was not in full effect yet, yet the slightly lower low just prior to taking the position indicated the price was losing some steam to the upside.

All of these trades would have worked out. Usually this strategy entails a 3.5 pip stop with a 6 pip target; the target can be extended if conditions warrant and the stop can be reduced (only reduced, never expanded) once the price is moving in our direction.

Given reduced volatility, even making 6 pips can be difficult without waiting a couple hours (not my style). Therefore, for those trading traditional markets the stop can reduced to about 2 to 2.5 pips and the target reduced to 6.

For those trading binary options, choosing an expiry of about 25 to 30 minutes would have produced 4 winners out of 4 trades.

Of course anytime the market trends nicely trading is “easier.”

The day before was trickier, as there was not much in the way of a trend. Using price analysis to help filter signals, there were 3 trades as shown in Figure 2. Two would have been profitable using the stop and target method. Trading binary options, an expiry of 25 to 30 minutes would have also resulted in 2 wins and 1 loss.

Figure 2. EURUSD 5-Minute Chart (January 22/23)

Why certain trades are avoided have been covered extensively in my trend and price analysis articles. Briefly though, as the US session ends the first few gyrations are avoided because the market is not trending. The lower low sets up the first trade since there is a potential for a trend down. The market moves aggressively lower setting up the second short trade. It keeps rallying and this would have been the loser. There is a potentially long trade right after this (near 04:10 on the chart) but since the market hasn’t shown a higher high the trend could still be down.

The price does rally aggressively, but doesn’t pull back to the lower band, therefore there are no entry signals. When it finally does pullback, it is only after creating a “double top”–in other words, the price couldn’t make a higher-high and therefore the trend was in jeopardy, which is why a long trade isn’t taken.

Finally we have our last trade, which we take because the price couldn’t move higher (see above) and then created a lower-low than the prior swing low.

Final Word

Being able to read price action with this strategy is key. While it can be frustrating at first, learning how to read price action is the ultimate trading skill next to mastering your own psychology. Some traders may prefer trading in the “off” hours, since moves are slower because of less volume and less traders involved in the moves. That doesn’t mean it is easy though. Temper expectations based on the decreased volatility and volume. If trading standard markets, stops and targets should be reduced, reflective of current conditions. You’ll also likely need to trade with an ECN forex account (basically zero spread, but you pay a commission) to make trading these 4 to 6 pips moves worthwhile. If trading binary options, you make the same regardless of how much the market moves, but be sure to do some research and get a sense of how long you want to be holding the option.

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